The eurozone has relapsed into double-dip recession as the austerity shock in the Mediterranean region spreads to the core countries of the north.
The Dutch economy shrank by 1.1pc in the third quarter amid a deep housing slump, and even Austria has begun to succumb. Finland’s economy has shrunk by 1pc over the last year.
“Recession comes as no surprise and it is going to get worse next year,” said Desmond Supple from Nomura. “Europe has imposed dusted-off policies from the 1930s and they are driving peripheral countries towards depression,” he said.
“We are seeing a mix of pro-cyclical fiscal austerity, overly-tight monetary policy, and regulatory overkill under the Basel III bank rules that are forcing lenders to tighten credit. Europe is stuck in a bad equilibrium and it is not going to end until there is a change of course.”
Prof Paul de Grauwe from the London School of Economics (LSE) said austerity measures imposed on the Club Med with no offsetting stimulus by the creditors was creating a contractionary bias to the whole system and and leading to a “very dangerous situation”.
France managed to stave off recession by the skin of its teeth, but that is unlikely to last after a blizzard of grim data in recent weeks and an austerity shock of 2pc of GDP coming next year.